Pros and Cons of Crowdfunding

Crowdfunding has plenty of disadvantages and advantages. It is very easy to think of it as the perfect way to get capital for a new creative or community project but it requires a good concept, adequate preparation, an existing and expanding community and a little bit of luck to take off and succeed. We hear of so many successes that the reality can often be something of a surprise. For example, only 44% of Kickstarter projects are successful with 10% not even getting a single pledge, 73% of fundit projects are successful.

The pros and cons of crowdfunding – why crowdfunding can be great for your business

Pros of Crowdfunding

Access to Capital: Crowdfunding can enable you to fund and create a creative, community or business project. It may be a project that wouldn’t get funding from the banks or you may want more from the ‘crowd’ than their money. Crowdfunding provides you with capital in a relatively short time.

Build Awareness: Crowdfunding helps you to build brand awareness before the project is completed. Your pledgers will be waiting for the project to be completed and will be telling their friends. Word of mouth is working in the background as you are working away on your film or book. Your pledgers are your ambassadors once it is launched.

Free Press Coverage: Crowdfunding can be newsworthy. If your campaign is doing particularly well or is considered ‘different’ by the media, your project gains free press coverage before it is even launched. You can go back to those same journalists when the project is ready and hopefully they will run another story, thereby reminding the readers and increasing interest and sales in your product.

Feedback: Whether the campaign is successful or not, you will receive feedback on your project. If people are convinced by its quality and pledge, you know it should do well. If it is a runaway success during your campaign, you are definitely onto a winner. If it doesn’t reach its goal, you know that it either needs tweaking or it is back to the drawing board but at least you didn’t invest significant money in a start up business to discover the truth after a couple of years.

Speed of response: Crowdfunding campaigns tend to be relatively short with most going for a timescale of a month – once you set the ball in motion, you find out the results pretty quickly, all things considered.

Marketing: Many businesses and creators are shy about ‘getting word out there’ about their new product or service. Crowdfunding forces you to use every contact you have and to build up your social media channels. This means that much of your audience (and your ambassadors) are there waiting when your product is ready to go. Ultimately, your crowdfunding audience can further the success of your product.

Cons of Crowdfunding

All or Nothing: Most crowdfunding platforms use the ‘all or nothing’ model. If you got your target wrong, you could end up with nothing.

Reputation: If it fails, your crowdfunding campaign stays on the crowdfunding platform for all to see.

Speed: Your product needs to be ready within months of the end of the campaign. Pledgers don’t like to wait years for their reward.

Time and Money: Some rewards can cost you money and valuable time. It often happens that creators will add in extra rewards as it gets closer to the end, without factoring in the extra time those rewards will actually involve not to mention the added cost. Even if they do make their goal, will they have enough left out of it for the original project? Rewards need to be considered very carefully.

Crowdfunding is a wonderful way to raise funds, grow brand awareness and increase sales – however, it can be easier said than done. If you would like to know how to prepare for and run a crowdfunding project, do check out our online course which starts on 2nd December for two weeks. I’m off to Wales on Monday to give a presentation on crowdfunding at the ACT Ireland Wales conference – hope you have a good week too.